Management Accounting Report: Systems, Decisions, and Costing Analysis

This report provides a comprehensive analysis of management accounting principles and their application within Imda Tech Ltd. It begins by defining management accounting and differentiating it from financial accounting, highlighting their respective scopes, regulations, objectives, and information types. The report then explores the importance of management accounting information in decision-making, focusing on cost analysis, activity-based costing, and make-or-buy analysis. Furthermore, it delves into various management accounting systems, including cost accounting, inventory management, job costing, and price optimization systems. The report also includes a practical application by preparing income statements under both absorption and marginal costing systems. The report emphasizes the role of management accounting in reducing costs, improving efficiency, and supporting strategic decisions within a business context.

MANAGEMENT
ACCOUNTING

INTRODUCTION
Role of manager has increases with the increasing external market difficulties which will
be managed by applying strong leadership skills. Imda Tech Ltd has been selected for the given
project report which is all about use of different financial resources in an enterprise in
achievement of desired aims and targets of an enterprise. This project is stresses on different
systems of accounting and difference between financial and management accounting. The
significance of the management accounting has explained hat helps in taking important decisions
in the business in resolving all doubts of the business.
TASK 1
a)
Define management accounting and distinguish between management accounting and financial
accounting.
Management accounting
The focus of management accountant lies in assessing the internal business structure f an
entity. Cost is the primary concern of the management which needs to be evaluated in order to
devise cost reduction strategies in order to reduce the overall cost of an enterprise. Data collected
by an individual will be pass on to the top management which helps them to take corrective
action in the business (Wilson and et.al., 2016). Reduction of costs is the clear sign of increasing
profitability of the business which needs to be evaluated over a particular time period.
There is set of rules to be followed by an individual while accounting all the transactions
that are related o the performance of the management. Top management assigned qualified
management accountant who analyses the current resources of an enterprise in order to
eliminates wastage from the business in order to help an entity in improving their quality. The
efficiency and effectiveness are two important criteria to be used as major function in the
business (Tosun and Bağdadioğlu, 2016). The quality of services are improved in order to deliver
important information from one end to another in order to handle complex problems in the
business enterprise.

The information supplied by the accountants in the management includes two kinds of
information such as qualitative or non-financial information supplied from one end to another in
order to improve the current efficiency of the business enterprise.
Difference between management and financial accounting
Scope- In terms of scope both streams are opposite to each other as in financial accounting the
focus lies on the external business environment and on the other hand management accounting
stresses on the internal business structure of Imda Tech Ltd.
Rules and regulations- Legislation and business code of conduct are prepared in order to
improve the overall performance of an entity. These regulations guide the performance of an
entity which directs an entity towards the achievement of all the goals and the objectives.
Management accountants are not restricted to adopt rules and the regulations but on the contrary,
financial accounts prepared by internal assesses but its evaluation is done by the external party in
form of audit of the financial accounts (Holston, Issarny and Parra, 2016). The financial
accountants are required to follow generally accepted principles that enhances the quality of all
the financial transactions included in the financial statements of an enterprise.
Objectives- The role of management accounting is to reduce the cost of the management but on
the other hand purpose of financial accounting is to give opinion on the financial statements.
True and fair view opinion will be given an external auditor after analysis the financial
statements prepared by an entity.
Information- There are two kinds of basic information such as qualitative and quantitative
information which will be included in the business. In the management accounting both
qualitative and non-financial information are supplied to the management but on the other hand,
financial accountants are highly concerned with the quantitative information. Monetary
information includes facts and figures that reflects the performance of the business in terms of
profit or loss incurred in the business.
Importance of management accounting information in making decisions
Management accounting is regarded as one f the important tool's ad techniques used y an
entity owner in order to reduce its obligation. The cost is the basic obligations imposed o an
entity which needs to be reduces with the passage of time as an entity owner need to devise cost
strategies in improving their current set of skills and the liabilities. There are ways significance

of the management accounting in the business of Imda Tech Ltd in taking important business
decisions is given as below:
Cost analysis- the methods of management accounting emphasis on determining the current
costs incurred in the business as determination of available expenditures is essential in order to
reduce hem over the period. The managerial accounting information will be useful in performing
he overall analysis by an enterprise. The motive of an entity is to know the current level of
expenditures in order to increase its income from different sources to meet the desired aims and
the objectives of the business (Bischoff and Blaeschke, 2016). The sales will be increases in
order to compensate the cost incurred n the business. Cost sheets are prepared and analyzed in
relation to the external market aims of the business in order to accomplish within a given time
frame. The cost charged on each and every products are assessed on various parameters such as
relevant and irrelevant in which the accuracy of the cost will be ascertained. The less relevant
cost charged on the production of product will be reduces.
Activity based costing- In this kind of costing all kinds of business activities are allocated with
special costs incurred in an enterprise. The process of allocation gets easier which helps in
allocating all the available resources optimally to al the business activities in the less period. The
prospected activities to be included in the business will be determined using ABC costing
techniques as their main motive is to recognize the future business activities to be included in the
business for achieving desired aims and the objectives of an enterprise.
Make or buy analysis- the management accounting principles is helpful for an entity owner in
order to decide the initial step to be taken in the business that products will be manufactured or
purchase from the external supplier (Gordon, Osgood Jr and Boden, 2016). This decision is
based on the current production cost incurred by an entity which will includes specific amount of
profit which makes up the combination of the selling price.
In the current case scenario, production cost of Imda Tech is 20 and profit element is 15
so the final selling price of the product is 35. The final selling price will be compared with the
wholesale price of a product in order to make decision of purchasing or buying the product that
can generate higher amount sales and the revenue for an entity in the near future. The
management accounting will provide al details regarding managerial information that improves

the overall performance of an entity by saving its time and energy in producing new product for
an enterprise.
b) Explain different types of management accounting systems
Cost accounting systems
Cost is given higher preference in an entity as reduction of available cost is the primary
motive of an entity owner. Cost sheets are prepared in order to track the current costs in an entity
by considering every minute changes in the current level of costs. The costs can be increases ir
decreases with the changes takes places in the external market. The increasing inflation will I
turn increases the variable cost. The increasing cost will directly created impact on the overall
price of an entity. The price sensitive customers are retained in the business by attract them
towards the business by charging lower and affordable pricing.
Inventory management systems
There are different kinds of inventory involved in an entity such as raw materials and
purchased goods from the external party. The raw materials are processed in the business I order
generating finished goods which will be supplied to the ed consumers of the business. Te
accounting of all kinds of inventories are there in order t track by the users as increase or
decrease in the overall value of inventory will directly affect the business performance of an
entity. Inventories are stored in an entity to be used in the production of goods to enhance the
quality of the business in front of the external consumers who test the accuracy of an entity in
relation to the external market aim and targets. The inventory can be managed in the business y
adopting various tools such as Just in time system (Gordon, Osgood Jr and Boden, 2016). In this
particular approach the inventories are purchased from the market just to meet the order as this
saves the time and money of the owner. The warehousing cost will get minimized in adopting
this system as inventories are simply transported from the seller to the doorstep of the customers.
Job costing systems
This kind of costing method is useful in the manufacturing organization where particular
batch units are process as singular jobs. The costing of these jobs will be done separate as the
primary aim of this method is to increase the efficiency pf all the batch units in an enterprise.
The selling price all kinds of jobs cum batch units of the total products in an entity like Imda
tech. The goals and the objectives are separately created which will be accomplished withi a

given time frame that helps in creating good brand image of an enterprise. The accounting of all
the job order are separately done as these al are treated as single products instead of just batch.
The batch umber is allotted to each and every batches in order to recognize the batch products in
the future.
Price optimizing system
Prices are set by an entity owner in order to improve all desired aims and the objectives
of an enterprise. In this particular analysis, the prices are set by an individual in order to cater
the variety of goals and the objectives of the business. The primary objective of this technique is
to give more emphasises on the operational efficiency of an entity. The factors on which this
analysis will base upon is to maximize the profits and the gains o the business. The current
resources are properly analyses in order to maximize the current profit of the business. The cost
attached with an entity are reduces to strengthen the capabilities of the business. An entity uses
various means in order to enhance the skill and the capabilities of an entity by charging different
prices for variety of products or services of an entity(Cinquini and Tenucci, 2016). Price
optimization is that important technique which emphasises on different business sectors such as
retail industry, banking sector, aviation and hospitality management sectors. The scope of the
business is essential in order to improve the business of an entity. It sis that analysis which is the
best suitable in that business which have larger data set which will be managed over a particular
time period.
TASK 2
Preparation of income statements under absorption and marginal costing systems
Table 1: Income statement under Absorption costing
Particulars Units Per unit cost Amount
Sales 1500 35 52500
- COGS
Direct Material 2000 8 (16000)
Direct Labor 2000 5 (10000)
Variable production
overhead
2000 2 (4000)
Fixed production 2000 5 (10000)

overhead
GP 12500
- Admin and selling
Fixed (10000*1) (10000)
Variable 52500*15% (7875)
Net loss 5375
Interpretation
It has been seen from the above income statement of an entity using absorption costing
that shows loss incurred in an entity as this method includes all kinds of costs in generation of
profit. Absorption costing is renowned as full and complete costing in which both kinds of cost
are taken into consideration in determining the cost of an enterprise in a particular year. In
absorption costing the profit or loss generated by an enterprise over the period are regarded as
reliable and accurate as this is based on considering all kinds of cost into the business.
In this kind of costing the treatment of period costs is similar as compared to the
treatment done in other types of costing method (Hakim, 2016). The developing prices on the
basis of this technique us regarded as the best suitable method as the prices remain constant as its
developed by considering both kinds of costs in the business. In the corporate world, the higher
preference is given to the absorption costing method as it is legally recognized in front of
external parties. Absorption costing is used in the external reporting and for the purpose of
income tax law in order to assess the existing business functions.
Table 2: Income statement under Marginal costing
Particulars Units Per unit cost Amount
Sales 1500 35 52500
- COGS
Direct Material 2000 8 (16000)
Direct Labor 2000 5 (10000)
Variable production
overhead
2000 2 (4000)
GP 22500

- Admin and selling
Fixed (10000*1) (10000)
Variable 52500*15% (7875)
Net Profit 4625
Interpretation
It can be said that an entity has generated profit by preparing income statements under
marginal costing. The reason behind generation of profit as compared to the absorption technique
is non-inclusion of fixed manufacturing overhead in the income statements. 10000 GBP has
saved by an entity which helps in meeting further expenses incurred in an entity as this costing
method will consider only variable costing and not fixed cost considered in the business.
Marginal costing is also regarded as variable costing which excluded the fixed cost as
fixed cost is only considered as period cost in this costing systems. Fixed costs is deducted in
total in the income statements of the marginal costing (Kaplan and Atkinson, 2015). In variable
costing fixed manufacturing overhead ad selling and administration expenses are regarded as
period costs. The period costs are deducted in whole from the sales and the revenue of an entity
as they are period costs which can be incurred for particular time period in the business. Direct
material, direct labor and variable manufacturing overhead are regarded as the product costs.
These costs are directly incurred in the making of product which directly affected on the
performance of an entity.
The concepts of marginal costing is used in analyzing the operational structure of an
entity by analyzing its internal business structures (Lafond, McAleer and Wentzel, 2016). Break
even concept is highly used in order to recognizes available costs in order to generate higher
amount of sales and the revenue. Cost volume profit analysis is used by an entity in order to
reduce its overall costs to enhance its current profitability.
Break even point= Fixed cost/Contribution per unit
Contribution per unit= Sales-variable cost

TASK 3
a) Different types of budgets and its advantages and disadvantages
Budgets are prepared in an enterprise to regulate performance of the business as this used
as forecasting analysis in which the current resources are analyses in order to predict the future
capabilities of an enterprise (Lafond, McAleer and Wentzel, 2016). The basic objective of budget
is to give more emphasize on the quantitative information uses by an entity including numerical
facts and figures. This reflects the skills and the capabilities of an entity by showing surplus or
deficits generated by an entity over the period.
Kinds of budget
Sales budget- This budget emphasises on the operational efficiency of the corporation as
generating higher amount of sales and the revenue is the basic aim of the business. In the sales
budget, sales units are decided by the owner according to its choice and current nature of the
business.
Particulars Quarter 1 Quarter 2
Budgeted sales units 5000 10000
Selling price 35 35
Sales and revenue 175000 350000
Advantages
It is used as an important tool of better cash flow management in an enterprise
This maximizes the operational efficiency of the business
Disadvantages
Wring estimated sales units will not assure an entity to achieve this much of sales in the near
future.
Higher sales price decreases the revenue of an entity
Production budget- The sales units will be included in this budget as one of the unit to be used
generating the further amount (Mokhtar, Jusoh and Zulkifli, 2016). This production budget will
focus on the current number o production units to be required by an entity in a particular period.
It includes opening and closing inventory values in the budget in order to determine the available
production units in the business.

Particulars Quarter 1 Quarter2
Sales in units 5000 10000
Add: Opening inventory 8000 12000
Less: Closing inventories 5000 10000
Units to be produced 8000 12000
Advantages
It helps in meeting sales target framed by an enterprise which inspires an individual in achieving
higher targets in limited time period.
This helps in safeguarding the inventory in an enterprise by keeping constant check on the
inventory in the firm.
Disadvantages
Deficiency in the sales budget will create wrong budget as this budget based o the sales budget
Higher production units increases the overhead costs in the business such as storage costs,
machine handling expenses, warehousing expenses, depreciation expenses.
Material budget- The raw materials are purchased by an entity or manufactured in the business
are recorded in the special statements like material budget (Leite, Fernandes and Leite, 2016). It
is essential to recognizes the current level of material in order to predict the future values of the
future based on the current values. This is important for an entity as this is regarded as prime cost
which will be included in the cost sheets in determining the overall cost and net profit of the
business.
Particular Quarter 1 Quarter 2
Production in units 8000 12000
Material per unit 8 8
Production require 64000 96000
Add: Closing inventory 5000 10000
Less: Beginning inventory 8000 12000
Material to be purchased 61000 94000
Advantages

It improves the overall efficiency of an enterprise by recognizing its current skills and the
capabilities of an individual.
The decision will get simplified by taking help of external party in purchasing materials from
outside or manufacturing goods
Disadvantages
Wrong estimation will create confusion in the business in achieving the desired aims and targets
of an enterprise.
b) Process of preparing budgets
Budgets is regarded as the forecasting analysis tool which is helpful for an entity in order
to analyses the current performance of an entity in order to comment upon its weaknesses. The
weaknesses determined by the budgets will be removed within a given time frame. This is also
regarded as evaluation technique in which the goals and the objectives will be achieved by an
entity by focusing upon its strengths and core competencies. There are different steps to be
followed by an entity in order to adopt various budgets in improving their overall performance:
Financial service department- The lower level employees who prepared budgets require basic
finance in order to start the overall budgeting procedure as without finance they will not start
framing budgets (Hakim, 2016). The sanctioning of budgets in terms of finance is essential
which requires approval of the finance departments. Budget estimates are prepared by an
individual which requires department approval in order to achieve the desired aims and targets.
Administration- The proposal of budgets is supplied by the lower level management to the top
management who will organize meeting of some officials in order in verifying all the deals of the
budget with the external business entity targets.
Work allocation- After approval of the proposal of the budget the next step is to allocate tasks
and duties of an individual in order to complete all the targets within a give time period. Middle
level employees held responsible for executing the budget the workplace.
Approval-The budgets will not sanction to the next stage until and unless it is approved by
officials in an enterprise. Approval will be given to the budget which includes true information in
order to support the desired aim of the business entity.